Investors raise a glass to Marston’s (MARS) cash generation plans

An earlier heatwave last year may explain the recent weaker sales, but with hot weather ahead, the drinks may soon be flowing.

Article updated: 24 July 2019 12:00pm Author: Tom Rosser

  • Marston’s bosses will be saying ‘cheers’ with Summer finally arriving in the UK as the poor weather so far has hit sales this year.
  • It has rejigged plans to speed up debt reduction to generate additional cash flow of £40-50m.
  • Despite a slow start to the year, we maintain our ‘Buy’ recommendation, believing that the debt reduction efforts will boost the longer term sustainability of the franchise.

Marston’s reported a marginal like-for-like sales increase in its trading update, reflecting weaker sales in the last 16 weeks as a result of poor English weather. Revenue growth in its managed and franchised pubs was up just 0.5% but this is indeed compared to an unusually hot summer last year, and an even more unusual successful performance in the World Cup. Together these made for a healthy trading environment for England’s pub retailing business.

The company has accelerated its debt reduction programme to shorten the time in which the target is reached. The earnings impacts of this are thought to be minimal and management also hope this will generate additional cash flow to the tune of £40-£50m over the next three years. This will be welcomed by some investors as it provides more financial headroom in the long run to support the respectable dividend yield. On the contrary, other investors may not be fond of the deferral of the £70m new-build investment.

The reallocation of capital expenditure and slower sales growth may partly explain the fall in share price this morning but with warmer weather predicted over the coming months, the company will hope that customers flock to the local pubs in order to attain fizzier sales growth figures.

Our View on Marston’s - Buy

We maintain our ‘Buy’ recommendation, believing that the debt reduction efforts will boost the longer term sustainability of the franchise.

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All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Tom Rosser

Graduate Trainee

Tom is on our Graduate Trainee program as a junior Investment Research Analyst within our fund research team. He holds a BSc Economics degree and an MSc Investment Management degree, and is currently studying towards CFA (Level ll) after passing CFA (Level l) in summer 2018.